Ace Automotive Group, a publicly held manufacturer of cars and light trucks, plans to move the production of engines for its automobiles to Mexico from plants in Indiana. However, Ace Automotive will still assemble its cars and trucks in the United States. The president of Ace Automotive announced to Wall Street analysts that this move will save the company $20 million per year even after accounting for the increased transportation costs needed to get the Mexican produced engines to Ace's assembly plants versus current engine transportation costs.
The statements above, if true, best support which of the following assertions?
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This is a great GMAT CR problem, because the argument is packed with all kinds of fascinating distractors. This is an inference question: for more on this question type, see:http://magoosh.com/gmat/2013/gmat-criti ... inference/(A) Ace Automotive Group's stock price will rise
Who knows? He made an announcement to Wall Street, so maybe the stocks will go up, but predicting stock movement is always a tricky business, and the argument offers no further proof of this. The whole stock thing is a distractor. This is incorrect. (B) Ace Automotive will have to deal with pickets and protests when it closes its engine production facilities in Indiana.
It's funny. In real life, it wouldn't be at all surprising if this happened --- this is very typical for this sort of situation. Nevertheless, the argument says absolutely nothing about disgruntled workers, so we have no grounds for drawing this conclusion. This is incorrect. (C) Ace Automotive would save more than $20 million per year from this move if engine transportation charges from Mexico equaled the old transportation charges from Indiana
Here, we have to read very carefully. The prompt says, "..this move will save the company $20 million per year even after accounting for the increased transportation costs
..." This means, the move saved them even more --- say, $30 million/yr --- but they will have to pay for the increased transportation cost --- say, $10 million/yr --- so that the net savings
is $20 million/yr. Gross is always greater than net. If we cut costs in some way, here cutting transportation costs, then the overall saving would have to be higher. This is definitely true, based on the passage. (D) Ace Automotive Group's assembly plants are, on average, closer to the old Indiana engine plants than they are to the new Mexican engine plants.
We know transportation costs will be higher, but we don't know about distance. Some transportation costs are related to business, but some are related to tariffs, border crossing feeds, etc. It may be the the Mexican plants are much closer but because of crossing an international boundary, it cost more to ship from there. We can draw any conclusions. This answer choice is incorrect. (E) Ace plans to spend less than $20 million on increased transportation costs.
We don't know. In the example I gave above, transportation costs were only about $10 million/yr. Suppose, for the sake of argument, Ace will save $80 million/yr in this move, but the increased transportation costs are $60 million/yr, then the net savings will still be $20 million/yr, even though the increased transportation costs are more.
The only valid answer is (C)
, the OA.
Does all this make sense?
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